In this week’s Alabama Law Weekly Update, we share with you two decisions from the 11th Circuit Court of Appeals. The first concerns non-competition agreements and the second deals with FDCPA violations in bankruptcy cases.
Dawson v. Ameritox, LTD, No. 14-10084 (11th Cir. July 10, 2014) (holding that non-compete agreement was void under Ala. Code § 8-1-1, where employee signed the agreement four days before his employment officially began).
This case came before the Eleventh Circuit Court of Appeals on appeal by Ameritox from the United States District Court for the Southern District of Alabama. The appellant, Dawson, signed a Confidentiality and Non-Competition Agreement (the “Agreement”) with Ameritox on April 7, 2011, four days before Dawson’s employment officially began. The Agreement prohibited Dawson from working for a number of Ameritox’s competitors, including a company called Millennium, for one year after his employment with Ameritox ended. On December 3, 2013, Dawson resigned from Ameritox and went to work for Millennium.
Dawson filed a declaratory judgment action on December 11, 2013, seeking to have the Agreement declared void, and Ameritox counterclaimed, asking for an injunction to prohibit Dawson from working for Millennium. The district court initially granted a temporary restraining order but, at a subsequent hearing, held that the Agreement was void under Ala. Code § 8-1-1 because Dawson was not yet an “employee” of Ameritox when he signed the Agreement. Ala. Code § 8-1-1 generally prohibits non-competition agreements in Alabama unless the agreement falls within a few exceptions, including the employee-employer exception found in 8-1-1(b). Because Dawson was not an employee when he signed the Agreement, the district court declined to enforce the Agreement under § 8-1-1, and Ameritox appealed.
The Eleventh Circuit affirmed the district court, agreeing that the employee-employer exception to the general rule of “voidness” of non-competition agreements in Alabama, found Ala. Code § 8-1-1, requires that the employee-employer relationship exist at the time the agreement is executed. Prospective employment is insufficient to make the Agreement valid. The Eleventh Circuit stated that because the Agreement was void under Alabama law, Ameritox could not show a likelihood of success on the merits of its claim, which is an element that must be shown for an award of injunctive relief.
Finally, the Court discussed the applicability of § 8-1-1 to partial, as opposed to complete, restraints of trade. Ameritox argued that § 8-1-1 should not apply to void the Agreement because § 8-1-1 does not apply to “partial” restraints of trade. Ameritox went on to argue that the Agreement with Dawson did not prohibit him from practicing his trade, so it was only a partial restraint. The Eleventh Circuit declined to determine whether the Agreement was a partial or complete restraint of trade, instead stating, “[c]ontrary to Ameritox’s argument, § 8-1-1 does appear to apply to employee noncompete agreements that only partially restrain trade.” The Court did not expound further since Dawson was not, in fact, an employee when the Agreement was signed so it did not matter whether the restraint was partial or complete: in either case, it was not enforceable and Ameritox could not succeed on the merits of its injunctive action. The Eleventh Circuit therefore affirmed the decision of the district court.
Crawford v. LVNV Funding, LLC, No. 13-12389 (11th Cir. July 10, 2014) (holding that debt collector violated FDCPA by filing a proof of claim in bankruptcy court for a debt that was stale under state law).
This case came to the Eleventh Circuit on appeal from Mr. Crawford. The facts are straighforward: Crawford owed $2,037.00 to a furniture company, with the last activity on the account occurring in October, 2001. The debt was acquired by LVNV Funding, LLC (“LVNV”). Under the Alabama statute of limitations, the debt became unenforceable in both state and federal court in October, 2004. In February 2008, Crawford filed for Chapter 13 bankruptcy, and LVNV filed a proof of claim to collect on the debt, even though the statute of limitations had expired four years prior. Neither Crawford nor the trustee objected to the claim during the bankruptcy proceeding, and the trustee paid monies from the Chapter 13 estate to LVNV (or its surrogates) for the debt. In 2012, Crawford filed a separate adversary proceeding, objecting to LVNV’s claim under the Federal Debt Collection Practices Act (“FDCPA”). The bankruptcy judge and district court judge dismissed the adversary proceeding, and Crawford appealed to the Eleventh Circuit Court of Appeals.
The Eleventh Circuit first examined the purpose and prohibitions of the FDCPA and described that the FDCPA prohibits “false, deceptive, or misleading representation or means” to collect on a debt. The Court found that LVNV’s filing of the proof of claim “fell well within the ambit of a ‘representation’ or ‘means’ used in ‘connection with the collection of any debt.’” The Court summed up its reasoning as follows, “Just as LVNV would have violated the FDCPA by filing a lawsuit on stale claims in state court, LVNV violated the FDCPA by filing a stale claim in bankruptcy court.”